This is excellent reporting and excellent analysis of the situation. The one thing I'd add is that as much as insurance companies are clearly screwing consumers, there's no good long-term way to insure property in a state that will eventually be underwater and remain profitable. There's really no good solution to this problem, but what the Legislature is doing here is just about the worst option.
Hi Jason - first, thank you for advocating so strongly for consumers, it's important work. However, a lot of times in public policy there are issues where the first order intended effect is positive, or at least noble, but the second and third order (unintended) effects are negative. One way attorneys' fees is one of those.
Insurance companies in every state are very highly regulated - they can face very significant penalties for not adhering to the insurance contract. The regulator also approves their pricing, underwriting and contract terms and will not approve rates that lead to an actuarial profit above 5%.
That is not to say that insurance companies will always make a 5% profit every year, since part of the insurance business (especially in places with a lot of weather volatility like Florida) is that profitability can swing a lot from one year to the next, depending on the weather. However, the Office of Insurance Regulation in Florida has experienced actuaries whose job it is to evaluate those filings and not approve them if they have excessive profit.
Florida is the only state in the whole country that has one way attorneys fees for insurance. It is also the only state in the whole country where insurance is so expensive and so difficult to get. It is also a state where most of the major insurance companies have left, or greatly diminished their presence.
One way attorney fees have created a situation where frivolous lawsuits are brought against property insurance companies, seeking damages well above what is actually justified by the damage. That is why Florida accounts for roughly 8% of homeowners insurance claims in the US and almost 80% of homeowners insurance lawsuits in the US (as calculated from National Association of Insurance Commissioner data).
It is very clear that the one way attorney fees laws are the main cause of the price and availability issues in Florida.
You are positioning this as a fight between insurance companies and consumers, which it is not. The excessive litigation drives increased loss costs for insurers and reinsurers, which results in higher prices and less availability for consumers for two reasons: 1. Insurers and their investors will not continue to do business here if they are consistently losing money. 2. The solvency division of the state regulators will not allow the insurance companies to underprice such that they are losing money consistently (since it's also bad for consumers when insurance companies go out of business).
So this is really a conflict between plaintiffs lawyers and insurance consumers.
There is very little risk to consumers in changing this law, they will still have the same significant protections consumers in other states have and they likely will see insurance get easier to get and stop increasing in price so much each year.
However, there is a risk to doing nothing, since the current trend of increasing prices and reduced availability is likely to continue. For example even in a year where there wasn't a hurricane, 2021, insurance companies in Florida lost about $1B. In fact, in the past year UPC, Fednat, St. Johns (3 of the top 5 carriers in Florida), along with some smaller carriers such as Southern Fidelity and Weston, all went insolvent. The remaining insurance companies will need to raise their prices by at least that much to remain solvent.
Wonderful reporting, explained well. Thanks for posting!
My only Q is regarding how this only involved property insurance policies. Can you give an example as to how this would play out for the average citizen?
This is excellent reporting and excellent analysis of the situation. The one thing I'd add is that as much as insurance companies are clearly screwing consumers, there's no good long-term way to insure property in a state that will eventually be underwater and remain profitable. There's really no good solution to this problem, but what the Legislature is doing here is just about the worst option.
Hi Jason - first, thank you for advocating so strongly for consumers, it's important work. However, a lot of times in public policy there are issues where the first order intended effect is positive, or at least noble, but the second and third order (unintended) effects are negative. One way attorneys' fees is one of those.
Insurance companies in every state are very highly regulated - they can face very significant penalties for not adhering to the insurance contract. The regulator also approves their pricing, underwriting and contract terms and will not approve rates that lead to an actuarial profit above 5%.
That is not to say that insurance companies will always make a 5% profit every year, since part of the insurance business (especially in places with a lot of weather volatility like Florida) is that profitability can swing a lot from one year to the next, depending on the weather. However, the Office of Insurance Regulation in Florida has experienced actuaries whose job it is to evaluate those filings and not approve them if they have excessive profit.
Florida is the only state in the whole country that has one way attorneys fees for insurance. It is also the only state in the whole country where insurance is so expensive and so difficult to get. It is also a state where most of the major insurance companies have left, or greatly diminished their presence.
One way attorney fees have created a situation where frivolous lawsuits are brought against property insurance companies, seeking damages well above what is actually justified by the damage. That is why Florida accounts for roughly 8% of homeowners insurance claims in the US and almost 80% of homeowners insurance lawsuits in the US (as calculated from National Association of Insurance Commissioner data).
https://www.insurancejournal.com/news/southeast/2021/04/14/609721.htm
It is very clear that the one way attorney fees laws are the main cause of the price and availability issues in Florida.
You are positioning this as a fight between insurance companies and consumers, which it is not. The excessive litigation drives increased loss costs for insurers and reinsurers, which results in higher prices and less availability for consumers for two reasons: 1. Insurers and their investors will not continue to do business here if they are consistently losing money. 2. The solvency division of the state regulators will not allow the insurance companies to underprice such that they are losing money consistently (since it's also bad for consumers when insurance companies go out of business).
The extra money collected from the insurance companies largely benefits the attorneys, not the litigious policyholders (https://www.propertycasualty360.com/2021/12/28/florida-personal-lines-coverage-reaches-crisis-levels-part-1/). And the non-litigious policy holders end up paying the bill indirectly through higher rates.
So this is really a conflict between plaintiffs lawyers and insurance consumers.
There is very little risk to consumers in changing this law, they will still have the same significant protections consumers in other states have and they likely will see insurance get easier to get and stop increasing in price so much each year.
However, there is a risk to doing nothing, since the current trend of increasing prices and reduced availability is likely to continue. For example even in a year where there wasn't a hurricane, 2021, insurance companies in Florida lost about $1B. In fact, in the past year UPC, Fednat, St. Johns (3 of the top 5 carriers in Florida), along with some smaller carriers such as Southern Fidelity and Weston, all went insolvent. The remaining insurance companies will need to raise their prices by at least that much to remain solvent.
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/losses-mount-for-many-fla-property-insurers-in-2021-69498985
https://www.artemis.bm/news/florida-reinsurance-costs-could-reach-breaking-point-warns-am-best/
It's not completely intuitive, but the bill currently in the Senate is customer friendly and will benefit all homeowners in Florida.
Wonderful reporting, explained well. Thanks for posting!
My only Q is regarding how this only involved property insurance policies. Can you give an example as to how this would play out for the average citizen?